US consumers keep spending despite reduced pay

And a study by the Federal Reserve Bank of New York found that consumers spent only 36 percent of the increased income that resulted from the tax cut. The rest went to paying down debt or to savings.

Since the tax cut didn’t boost spending that much, its expiration may not drag it down much, either. Economists say temporary tax cuts are often ineffective because many consumers assume that the tax breaks will eventually disappear. So they don’t ramp up spending in response.

Scott Loehrke, 25, hasn’t cut back spending this year. Loehrke went ahead in March with some car repairs that could have been delayed. And he still plans to vacation in May in Mexico with his wife, Jackie.

The couple, who live just outside Cleveland, feel secure in their jobs. Loehrke is a salesman for a company that makes T-shirts, cups, key chains and other promotional products. Business has picked up in the past year as the economy has improved. His wife is a pharmacist.

“Everything that we’ve planned to do we’re still doing,” Loehrke says.

The Loehrkes both have heavy student debt and so are focused on keeping their expenses in check. They both drive used cars. That’s enabled them to build up some savings and made it easier to absorb the tax increase.

New threats have emerged. Across-the-board government spending cuts kicked in March 1. The spending cuts have triggered government furloughs and could lead private companies that do business with the government to cut staff. And the cuts are expected to shave a half-point from economic growth this year.

Even so, most economists are relieved that consumers have proved so resilient so far.

“It’s very encouraging that consumers and thus the broader economy have been able to weather that storm as well as they have,” says Mark Zandi, an economist at Moody’s Analytics.